AU: Labour Force Survey

Wed Nov 16 18:30:00 CST 2016

Consensus

Actual

Previous

Revised

Unemployment

5.7%

5.6%

5.6%

Employment

20,000

9,800

-9,800

-29,000

Participation Rate

64.6%

64.4%

64.5%

64.4%

Highlights
Australia's job market improved in October, with the number of employed persons (on a seasonally adjusted basis) increasing by 9,800. This was an improvement from the fall of 29,000 in September (revised from an earlier estimate of a fall of 9,800) but fell short of the consensus forecast for an increase of 20,000. The unemployment rate was steady at 5.6 percent, a three year low, while the labour force participation rate was also steady at 64.4 percent.

Full-time jobs drove the increase in headline employment in October. After a decline of 74,300 in September (revised from a fall of 53,000), there were 41,500 extra full-time jobs in October, the biggest increase since June. This was offset by 31,700 fewer part-time jobs, unwinding much of the increase of 43,200 recorded in September. Despite these moves in October, however, there remains a strong trend for a shift in jobs from full-time to part-time. Since the end of last year, seasonally adjusted full-time employment has decreased by 89,900 persons, while part-time employment has increased by 133,000 persons.

The number of unemployed persons fell by around 2,000 in October, reflecting around 2,700 fewer unemployed persons looking for part-time work, and around 700 more unemployed persons looking for full-time work. This relatively small change in the number of unemployed persons left the unemployment rate unchanged at 5.6 percent, its lowest level since September 2013. This low unemployment rate, however, largely reflects a weak labour force participation rate which, remaining steady at 64.4 percent in October, is at its lowest level since 2006.

Today's data is unlikely to resolve the uncertainty officials at the Reserve Bank of Australia currently have about the underlying strength of the labour market. In particular, officials have noted that strong growth in part-time employment is usually associated with rising unemployment rates, a situation that has not been happening this year. This has prompted them to question whether part-time workers are looking to work additional hours, but available data have not been able to provide clear information about this. As a result, officials have been unsure about how much spare capacity there is the labour market and how much upward pressure this might put on inflation.

Definition
The Labour Force Survey is a key economic indicator giving an overall picture of employment and unemployment. Employment counts the number of paid employees working part-time or full-time in the nation's business and government establishments. The unemployment rate measures the number of unemployed as a percentage of the labour force.

Description
This report is used as an indicator of the health of the domestic economy. Employment trends highlight the strength in job creation and the implications for future sectoral activity. The unemployment rate is used as an indicator of tightness in labor markets and can foreshadow a future increase in wages. Labor force data provide investors with the earliest signs of industry performance. While other data are produced with a month or two delay, these data are available only a week to 10 days after the end of the latest month. Reactions can be dramatic - especially when the result is unanticipated.

The information in the report is invaluable for investors. By looking at employment trends in the various sectors, investors can take more strategic control of their portfolio. If employment in certain industries is growing, there could be investment opportunities in the firms within that industry.

The bond market will rally (fall) when the employment situation shows weakness (strength). The equity market often rallies with the bond market on weak data because low interest rates are good for stocks. But sometimes the two markets move in opposite directions. After all, a healthy labor market should be favorable for the stock market because it supports economic growth and corporate profits. At the same time, bond traders are more concerned about the potential for inflationary pressures.

The unemployment rate rises during cyclical downturns and falls during periods of rapid economic growth. A rising unemployment rate is associated with a weak or contracting economy and declining interest rates. Conversely, a decreasing unemployment rate is associated with an expanding economy and potentially rising interest rates. The fear is that wages will accelerate if the unemployment rate becomes too low and workers are hard to find.

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